June 18 (Bloomberg) -- Premier Wen Jiabao has an unspoken
message to his Group of 20 counterparts in Mexico today: This
time, don’t count on a growth bailout from China.

In the depths of the 2008 credit crunch, Wen’s 4 trillion
yuan ($586 billion) fiscal injection over two years and 17.6
trillion yuan credit surge helped prop up the global economy. In
China, it fueled a property bubble, stoked inflation and amassed
bad debts that Fitch Ratings says weakened the banking system.

“The government is trying to strike a better balance
between stabilizing growth in the short term and adjusting
structure in the long term,” said Peng Wensheng, chief
economist in Beijing at China International Capital Corp., who
worked at the International Monetary Fund and Hong Kong’s
central bank. Total stimulus this year may be less than one-third the size of the 5.4 trillion yuan fiscal and monetary
firepower of 2009, Peng said.

Investment is more strategically focused than the efforts
that year that helped cushion everyone from Australian iron-ore
exporters to General Motors Co., which saw its Chinese sales
soar 67 percent as it coped with bankruptcy at home. Of some 818
billion yuan in projects recently approved, 55 percent were for
clean energy or subsidies for fuel-efficient cars, according to
Australia and New Zealand Banking Group Ltd.

Hydropower Approvals

China has accelerated approvals for wind farms, hydropower
plants, airports and steel mills endorsed in its five-year plan
through 2015. The government released 66 billion yuan in funding
for 2.3 million low-cost houses, and will allocate a 26.5
billion yuan subsidy for eco-friendly household appliances and 6
billion yuan to stimulate sales of energy-efficient vehicles.

Policy makers have relaxed lending rules for banks and
expanded loans for first-home buyers to try to support the
property market without fueling the speculation that drove up
house prices in 2009. A report today showed that China’s home
prices fell in a record 54 of 70 cities tracked by the
government in May as developers cut prices to boost sales.

While the approach is boosting sales prospects for solar-panel producer Suntech Power Holdings Co., automaker Great Wall
Motor Co. and household-equipment supplier Hisense Electric Co.,
it provides less help for a global economy hit by Europe’s debt
crisis. G-20 leaders have pressed Europe for a stronger response
ahead of their two-day summit in Los Cabos, Mexico, starting
today.

Europe’s Woes

The leaders gather a day after a Greek election that’s
projected to have yielded enough seats for pro-bailout political
parties to forge a parliamentary majority. The result spurred a
gain in the euro before it lost the advance, as a sell-off in
Spanish bonds sent yields to a euro-area record and served as a
reminder about the depths of Europe’s woes. The euro was little
changed at $1.2638 as of 6:33 p.m. in Tokyo.

China is confident Europe is able to solve its own problems,
Vice Finance Minister Zhu Guangyao told reporters in Los Cabos
late yesterday. Zhu said his nation’s economy faces great
downside pressure, and the current main task is to stabilize
growth. He declined to specify China’s contribution to an
increase in IMF resources ahead of the summit.

China’s “recent policy support is an effort to trim the
downside risk and sustain overall growth at about 8 percent, not
a major stimulus that would ‘save’ the world economy as in
2009,” said Wang Tao, an economist at UBS AG in Hong Kong.
China’s gross domestic product rose 8.1 percent in January-to-March from a year before, the least in almost three years.

Deposit Leeway

Monetary policy has also been deployed, this time with a
twist. The central bank cut interest rates on June 7 for the
first time since 2008. Accompanying the quarter-point cut,
lenders were given greater leeway to set rates on deposits, a
step that U.S. negotiators had urged as a component of needed
financial deregulation in the world’s second-largest economy.

“Such reforms should allay concerns that the government,
spooked by bad economic data, would be narrowly focused on
short-term stimulus measures while neglecting long-term
reforms,” said Fred Hu, a former chairman for Greater China for
Goldman Sachs Group Inc. “The latest announcement by the
Chinese central bank sent a positive and reassuring signal for a
well-balanced policy package.”

After industrial production gains slumped to a three-year
low in April and exports and imports rose less than estimated,
the State Council said in a statement on May 23 it would take
measures to expand demand and introduce policies to create
“stable and relatively fast economic growth.”

‘Unsustainable’ Stimulus

There is no plan for stimulus on the scale of 2008 because
that is “unsustainable,” the state-run Xinhua News Agency
reported May 29. China’s banks are weaker in terms of
capitalization compared with other emerging-market lenders due
to the stimulus provided through credit growth in 2009-10,
Andrew Colquhoun, head of Asia Pacific sovereign ratings at
Fitch, said in Singapore June 13.

China’s economy grew 9.2 percent in 2009, when global GDP
contracted. By comparison, Chinese expansion this year is
estimated by the IMF at 8.2 percent, with world GDP up 3.5
percent. China’s contribution to global growth may fall to about
30 percent in 2012, from 36 percent last year, says Pieter
Bottelier, a professor of China studies at Johns Hopkins
University in Washington who formerly worked for the World Bank.

“The rate cut is an indication of greater policy
engagement but not a harbinger of an ‘all in’ policy response,”
said Ramin Toloui, Pacific Investment Management Co.’s co-head
of emerging markets portfolio management in Singapore. “The
macro impact will be moderate and we still expect growth in the
mid-7 percent area for 2012.”

Lending Jump

There are indications the accelerated projects are
beginning to have an impact. New loans surged to 793.2 billion
yuan in May, the highest for that month on record, pointing to a
rebound in lending in late May as banks and borrowers responded
to the government’s initiatives, according to Capital Economics
Ltd. HSBC Holdings Plc said new loans may rise to as much as 1
trillion yuan this month.

The world’s largest solar-panel makers are boosting
production this year in anticipation that demand in China will
double, according to estimates by Bloomberg New Energy Finance.

The five biggest producers of polysilicon solar modules,
led by China’s Suntech Power and Yingli Green Energy Holdings
Co., will increase shipments 27 percent to 37 percent from 2011
levels, according to the average of estimates compiled by
Bloomberg. Yingli, China’s second-biggest solar-panel maker,
said May 30 it expects domestic sales to gain by 36 percent this
year as the country’s subsidy program accelerates.

Energy Savers

Shares in Great Wall Motor advanced 6.4 percent May 29 as
it was named among auto companies that may benefit from
government subsidies, according to BNP Paribas SA. Hisense
Electric, China’s biggest manufacturer of flat-panel televisions,
climbed to a one-month high the same day after the Ministry of
Finance said the nation will subsidize the use of energy-saving
appliances.

The strategy of limiting stimulus may come under pressure
from provincial governments, especially if Europe’s debt crisis
deepens. Yao Wei, a Hong Kong-based economist at Societe
Generale SA, said the rush of project approvals in May,
including the green light for two new steel mills in Guangdong
and Guangxi provinces, creates a sense of “deja vu.”

“You can quite easily imagine a scenario where China
approves a few too many projects and growth comes in at 9
percent,” said Alistair Thornton, an economist with IHS Global
Insight in Beijing. “That would be fantastic in the short term
but in the medium term problems would rear their head even more
greatly.”

Firepower Remains

With its benchmark lending rate at 6.31 percent and a
central government debt-to-GDP ratio less than one-third the U.S.
level, China has wherewithal to hit both the monetary and fiscal
accelerators if needed. More than one-fifth of the economy is
still based on exports, leaving it vulnerable to any 2008-09
type of contraction in global commerce.

“Should Europe implode into a disorderly break-up -- still
an unlikely outcome -- China has plenty of ammunition in its
monetary and fiscal policy arsenal to counter the risks,” said
Stephen Roach, a professor at Yale University and former non-executive chairman for Morgan Stanley in Asia.

So far, policy makers are holding the line. Guangdong
province must close 16 million tons of existing steel capacity
to compensate for a new plant approved for Baosteel Group Corp.
while Wuhan Iron & Steel Group’s facility in Guangxi must
eliminate 10.7 million tons, the National Development and Reform
Commission said in statements on May 25.

Greener Plants

“If you look carefully at the so-called accelerated
approval of investment projects, I argue most will have long-term implications in driving out the polluting and inefficient
existing production,” said Li Daokui, a former central bank
adviser. The new mills will be “more efficient and greener”
than current plants in Beijing, Shandong and Hebei, Li said.

Support for real estate, which UBS estimates accounts for
more than a quarter of final demand, has helped to revive the
property market. After banks lowered mortgage rates for first-home buyers, transactions in Beijing rose 30 percent in May from
the previous month, to 23,174 units, the highest since the
Chinese capital imposed property controls in February last year,
Centaline Property Agency Ltd. said in a June 1 report.

The government still has a “no mercy” stance toward
speculators because it doesn’t want home prices to climb,
Societe Generale’s Yao said.

“Policy makers want to engineer an era of better-quality
growth based on higher consumption and lower energy-consuming
and polluting production,” Jim O’Neill, chairman of Goldman
Sachs Asset Management in London, wrote in a June 2 note to
clients. “I think it unwise for people to expect another big
infrastructure-based stimulus.”